Blue-chip stocks end losing streak

MichaelBaron

NEW YORK (CBS.MW) - Blue-chip stocks surged to close near their session-highs Wednesday, rallying after a reiteration from Treasury Secretary John Snow that the U.S. does indeed favor a strong dollar muted the impact of continued international unrest.

With Snow's help, the market fought back above the flat-line in a seesaw session that saw buyers shrug off a blow to U.S. hopes for the passage of a U.N. resolution authorizing a war with Iraq on Friday.

Foreign ministers of France, Germany, and Russia vowed to block the move Wednesday, prompting Secretary of State Colin Powell to again outline the case against Saddam Hussein and the U.S. commitment to disarmament. A suicide bombing in Israel and signs of increased tension with North Korea also hurt sentiment.

The Dow Jones Industrial Average
DJIA, +1.38%
gained 70.73 points, or 0.9 percent, to close at 7,775.60, while the Nasdaq Composite
$COMPQ
added 6.63 points, or 0.5 percent, to finish at 1,314.40. The S&P 500 index
SPX, +1.32%
rose 7.87 points, or 1 percent, to 829.86.

The blue-chip index traded in a range of 7,775.60 to 7,661.32 The Nasdaq Composite ran from 1,317 to 1,302.

The advance reversed weakness earlier this week. The Dow fell a combined 186 points Monday and Tuesday, and after closing just above its session low of 7,704.31 on Tuesday, the index sat at its lowest close since an Oct. 10th finish at 7,533.95. Within that session on Oct. 10th, the Dow scraped a low of 7,197.49, its worst level since October 1997.

Breadth within the Dow was positive with 26 of the 30 components moving higher. In the overall market, gainers beat losers, 17 to 15, on the Big Board, while the Nasdaq saw decliners trump advancers by the same margin, 17 to 15.

Volume remained light, as it has all year, with shares in play totaling 1.3 billion on the NYSE and 1.37 billion on the Nasdaq.

Boeing tumbled after the company's chief executive told a German newspaper that UK firm BAE Systems is an "interesting candidate for a merger." Coke came under pressure after Pepsi Bottling
PBG, -3.45%
the largest bottler for rival Pepsi, cuts its earnings forecast for 2003. McDonald's slipped for a third straight session.

Only DuPont, which announced its acquisition of Eastman Chemical's
EMN, +2.63%
plastics business, was able to bounce back and close higher.

Snow's words at midday - a blunt "Let me reiterate my support for a strong dollar," came at a currency signing ceremony with Treasurer Rosario Marin. It followed moderate selling in the Dow and Nasdaq early in the session.

This statement stood in stark contrast to an overnight quote that he "was not particularly concerned" about the dollar's slide to a four-year low versus the Euro since the G7 meeting on Feb. 21-22. See full story.

Lowry's strategist Dickson sees dollar as 'real concern'

Richard Dickson, a senior strategist at Lowry's Research, said the potential for problems to arise from weakness in the U.S. currency is "very real" especially in light of America's deteriorating international reputation.

He expressed fear that foreign investment in the U.S. could stall, or even worse, funds could get pulled out of America if this continues.

Dickson added that, by historic standards, he believes the stock market is still overvalued, particularly considering the uncertain outlook for earnings. The notion of a 'relief' rally if a war with Iraq starts isn't a lock for Dickson.

"Without the pre-conditions for a real rally in place, there is the fear that relief buying once a war starts could lead to a sell-off that would send us to even lower lows," he said. Listen to full interview

Bombing kills at least 15

Recent reports indicated that the suicide bombing, which occurred on a bus in Haifa in northern Israel, killed at least fifteen people and injured roughly 40 more.

As for the setback on the warfront, the French, German, and Russian ministers held an emergency meeting in Paris ahead of Friday's U.N. Security Council meeting, when the resolution proposing war is expected to be put to a vote.

Chief weapons inspector Hans Blix is also scheduled to present his final judgment on Iraq's compliance with the international mandate to disarm at Friday's meeting. The White House said it remains confident a resolution would be passed.

Non-factory ISM shows slowing growth in Feb.

The service sector of the economy grew at a slower rate last month, the Institute for Supply Management reported Wednesday.

For February, the ISM's non-factory index read at 53.9, down from 54.5 in January. The group's closely watched factory sector index, released earlier this week, registered at 50.5.

While noting the number was a tad above the 53.5 consensus, Ian Shepherdson, chief economist with High Frequency Economics, offered tempered enthusiasm in his analysis of the figure.

"Given the clear slowing in retail sales evident in chain store surveys, this number is pleasantly surprising, though the details are a bit less encouraging than the headline," he said.

"Unlike the manufacturing survey, the headline index is derived from a single question on overall business activity," he continued. "We prefer to track the new orders index, which dropped 3.2 points to a 4-month low, 53.2."

Shepherdson characterized this number as "not great," but he noted that in light of the snowstorm and the rising war fears, "it could have been worse."

"Elsewhere, prices paid rose to a 25-month high, and employment slipped a bit - though it remains well above last year's levels," he added. "Overall, not too bad."

U.S. sends bombers to Guam

In other international developments, the U.S. disclosed two dozen long-range bombers would be sent to Guam, putting the firepower within striking range of North Korea.

President Bush has maintained that escalating tensions with North Korea can be eased through diplomacy but he was quoted in comments released by the White House as saying that if such efforts are unsuccessful, "they'll have to work militarily."

North Korea restarted a nuclear reactor recently and, over the weekend, four of the country's MIG fighter planes tailed a U.S. spy plane over the Sea of Japan.

Oracle falls to two-month low

Shares of Oracle
ORCL, +1.42%
lost roughly 4 percent following comments from Lehman Bros., which believes investors should expect a "ho-hum" third quarter from the database software giant.

The stock scraped a two month low of $11.04 on volume of 40 million shares, making it the day's most-active issue.

Analyst Neil Herman at Lehman Bros. cited signs that February was "quite tough" in the U.S.

"We would not be surprised if license revenue is a bit weak despite the positive impact of currency translation," Herman said in a note to clients. "Although our numbers feel reasonable going forward, given the tough macro-environment and geo-political uncertainty, we expect Oracle to be cautious about the near-term."

The company is slated to report fiscal third quarter results on Mar. 18. Analysts polled by Thomson First Call are looking for a profit of 10 cents per share in the period, on average.

Merrill lowers estimates on Walt Disney

Citing the downward trend in consumer confidence, Merrill Lynch issued a research note dropping its estimates for Dow component Walt Disney's
DIS, +0.03%
performance in the second quarter and full year of fiscal 2003.

The move follows a research note from Soundview on Tuesday that speculated the company could be forced issue a warning on its upcoming results and sent its shares almost 5 percent lower.

Specifically, the firm slashed its theme park revenue estimate for the second quarter by $90 million to $200 million, and its estimate for the full year by $205 million to $1.1 billion.

Merrill left its rating on the stock "neutral," saying that it still believes the company is poised to enjoy a very strong second half momentum, particularly in cable networks. See full story.

Provident plunges on restatement; FTC blocks Nestle/Dreyer deal

In corporate news, shares of Provident Financial
PFGI
sank about 20 percent after the bank holding company restated operating results from 1997 through 2002 due to errors in the accounting treatment of nine auto lease financing transactions originated.

The company also cut its 2003 earnings forecast to $2.30 to $2.50 a share from $2.50 to $2.70 as a result of the estimated impact of the auto lease financing transactions. See full story.

Also, Dreyer's Grand Ice Cream
DRYR
shares dropped more than 14 percent after the Federal Trade Commission said late Tuesday that it would try to block Nestle from acquiring the company. The company plans to continue discussions with the FTC regarding further potential divestitures of assets. See full story.

Kohl's shares, however, rose more than 7 percent after the retailer reported fourth-quarter earnings of $279 million, or 81 cents per share, up from its year-ago profit of $233.8 million, or 68 cents per share, and a penny ahead of the average estimate of analysts polled by Thomson First Call. See full story.

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